Lawrence Stephens

Subordination Agreements and Deeds of Priority

When lending money to a borrower who may receive other funds that are secured over the same assets, lenders want to make sure that their loan has the agreed priority.  When putting a legal agreement or deed in place when the loan is taken out, lenders want to be sure that their priority as a creditor is as intended should the borrower default.

We draw up subordination agreements and deeds of priority to ensure that lenders are in a secure position.  In the event of insolvency, senior creditors have the right to be repaid in full before subordinated debts are paid.  Borrowers with financial problems may be unable to satisfy all their debts in full, so securing a position as a priority debtor is often critical.

In understanding the impact of sitting behind a senior lender, we advise mezzanine lenders on the terms of deeds of priority.  We also advise borrowers on the terms of subordination agreements and deeds of priority to ensure that the implications of signing are fully understood.

We always ensure that we fully understand each business, so that recommendations are based on our clients’ long-term goals, aims and ambitions.

Subordination agreements

When a business borrows funds from multiple sources, a subordination agreement outlines the order of repayment.  It can be used to prioritise a commercial lender above a loan by a director, for example.  The director can sign the agreement to confirm that they will not take funds to satisfy their debt until the commercial lender’s loan has been fully repaid.

Deeds of priority

When lending to a borrower who has other lending that may also secured over the same assets as our client, we can draw up a deed of priority to ensure that the client’s loan takes priority.  Should only some of the loans be repaid, then their loan takes precedence, which is crucial should the borrower enter administration.